Huge Mistakes Made When Choosing a Day Trading System | Part Three

Mistake: Repeating Day Trading Entry and Exit Strategy Mistakes

Three Questions to Remember When Choosing a Day Trading Entry and Exit Strategy

While researching trading systems, many traders run into different strategies that are obviously going to fail.

I recently had an experience with an education company claiming to have made hundreds of thousands of dollar with it’s own proprietary trading system. For a fee, the company was willing to teach me this strategy via their own education system.

While looking into this company, I made sure to remember the following questions:

If someone decides to make a trade, what do they stand to gain?

What do they stand to lose?

If a company was fishing for a good testimonial, but couldn’t actually deliver on its low-risk guarantees, could it inflate results to mislead consumers?

A Bad Day Trading Entry and Exit Strategy Can Mislead You

One of the main ways a company can inflate results is through what is called a hedge. A hedge is an opposing trade of equal value that offsets any profits or losses accrued by a previous trade.

So, if a trader sets up two accounts, places a buying trade with one and a selling trade of equal value with the other, they are hedging. The profits of the first account will even out the losses of the other and only the winning trades are displayed.

This is only one of the many ways these “educators” are enticing customers to use their programs.

How to Spot a Faulty Day Trading Entry and Exit Strategy

Remember that if you only see a couple of trades on a statement, it’s likely faulty information.

Now, let’s say you see a statement with over 100 profitable trades. Your first instinct may be to trust the system. However, it’s important to make sure a stop loss was in place before going with this instinct.

Traders with millions in their account are able to trade the market on the smallest level with no stop loss. This means they are able to hold onto their trade regardless of which way the market swings.

This isn’t how a typical trader attacks the market, so why would you want a system that isn’t tailored to fit realistic trading parameters? In these systems that don’t use a stop loss, one bad trade can outweigh more than the 100 good ones and wipe out an entire account.

The typical trader would have a stop loss set and an exit strategy in place. Make sure these are part of your trading system if you haven’t already.

Day Trading Entry and Exit Strategy Red Flag

There is no such thing as a perfect trading system. It is impossible to trade without taking at least a few losses here and there.

Another issue that has been seen is the lack of continuing education surrounding margin. Some education systems even purposely leave margin curriculum all together. This allows the company to show flexibility in their system when a trader is margined out and is looking for someone to blame.

Margin requirements should be clearly and thoroughly taught before the trader experiences it with a loss.

A good way to spot margin issues with a trading system is to make sure margin requirements match up with stop loss positions. If the margin would kick a trader out far before the stop loss, it may simply just be an oversight by the educator. However, if they get this basic step wrong, what other compromising practices will they teach you?

What to Look for When Choosing a Day Trading Entry and Exit Strategy

The final topic to be discussed relating to entries and exits is how long or short to make them.

When identifying an exit strategy, remember that almost every strategy has many variables going into the equation. This can make it hard to plan ahead, which is why some educators determine their exit strategy at random.

For new traders, it’s important to focus on the winner-to-loser ratio instead of the length. If this ratio is profitable, it shows the system works regardless of its exit strategy.

Day Trading Entry and Exit Strategy: The X Factor

At a certain point during their day trading education, each beginning trader finds themselves at a crossroads.The choice facing them? Whether to choose a scalping method (short exits and stops) or a long term strategy (long exits and stops).

The main thing to consider when making this decision is whether you’re financially capable of practicing this method in your trading. Many think scalping involves less financial commitment than long term trading. However, the truth is the exact opposite!

Personally, we suggest trading short term systems. The uncertainty of world economics, along with unsteady market conditions in recent years make scalping the safer choice between the two. This is due to the limited amount of time spent in the market as opposed to long term trading.